Exhibit 10.6


 


ASSURED GUARANTY LTD. 2004

LONG-TERM INCENTIVE PLAN


 


SECTION 1

GENERAL


 


1.1.  Purpose.  The Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (the “Plan”) has been established by Assured Guaranty Ltd. (the
“Company”) to (i) attract and retain persons eligible to participate in the
Plan; (ii) motivate Participants, by means of appropriate incentives, to
achieve long-range goals; (iii) provide incentive compensation opportunities
that are competitive with those of other similar companies; and (iv) further
identify Participants’ interests with those of the Company’s other shareholders
through compensation that is based on the Company’s common shares; and thereby
promote the long-term financial interest of the Company and the Subsidiaries,
including the growth in value of the Company’s equity and enhancement of
long-term shareholder return.


 


1.2.  Participation.  Subject to the terms and conditions of the
Plan, the Committee shall determine and designate, from time to time, from
among the Eligible Individuals, those persons who will be granted one or more
Awards under the Plan, and thereby become “Participants” in the Plan.


 


1.3.  Operation,
Administration, and Definitions. 
The operation and administration of the Plan, including the Awards made
under the Plan, shall be subject to the provisions of Section 5 (relating
to operation and administration). 
Capitalized terms in the Plan shall be defined as set forth in the Plan
(including the definition provisions of Section 9).


 


SECTION 2

OPTIONS AND SARS


 


2.1.  Definitions.


 


(a)                                  The grant of an
“Option” entitles the Participant to purchase Shares at an Exercise Price
established by the Committee.  Any
Option granted under this Section 2 may be either an incentive stock
option (an “ISO”) or a non-qualified option (an “NQO”), as determined in the
discretion of the Committee.  An “ISO”
is an Option that is intended to satisfy the requirements applicable to an
“incentive stock option” described in section 422(b) of the Code.  An “NQO” is an Option that is not intended
to be an “incentive stock option” as that term is described in
section 422(b) of the Code.


 


(b)                                 A stock appreciation
right (an “SAR”) entitles the Participant to receive, in cash or Shares (as
determined in accordance with subsection 2.5), value equal to (or
otherwise based on) the excess of: (a) the Fair Market Value of a specified
number of Shares at the time of exercise; over (b) an Exercise Price
established by the Committee.


 


2.2.  Exercise Price.  The “Exercise Price” of each Option and SAR
granted under this Section 2 shall be established by the Committee or
shall be determined by a method established by the Committee at the time the
Option or SAR is granted.  The Exercise
Price shall not be less


 

















 


than 100% of the Fair Market Value of a Share on the date of grant (or,
if greater, the par value, if any, of a Share).


 


2.3.  Exercise.  An Option and an SAR shall be exercisable in
accordance with such terms and conditions and during such periods as may be
established by the Committee.  In no
event, however, shall an Option or SAR expire later than ten years after the
date of its grant.


 


2.4.  Payment of Option
Exercise Price.  The payment of the
Exercise Price of an Option granted under this Section 2 shall be subject
to the following:


 


(a)                                  Subject to the
following provisions of this subsection 2.4, the full Exercise Price for
Shares purchased upon the exercise of any Option shall be paid at the time of
such exercise (except that, in the case of an exercise arrangement approved by
the Committee and described in paragraph 2.4(c), payment may be made as soon as
practicable after the exercise).


 


(b)                                 Subject to applicable
law, the full Exercise Price shall be payable in cash, by promissory note, or
by tendering, by either actual delivery of shares or by attestation, Shares
acceptable to the Committee, and valued at Fair Market Value as of the day of
exercise, or in any combination thereof, as determined by the Committee;
provided that, except as otherwise provided by the Committee, payments made with
Shares in accordance with this paragraph (b) shall be limited to Shares held by
the Participant for not less than six months prior to the payment date.


 


(c)                                  Subject to applicable
law, the Committee may permit a Participant to elect to pay the Exercise Price
upon the exercise of an Option by irrevocably authorizing a third party to sell
Shares (or a sufficient portion of the Shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to
pay the entire Exercise Price and any tax withholding resulting from such
exercise.


 


2.5.  Settlement of Award.  Settlement of Options and SARs is subject to
subsection 5.7.


 


2.6.  No Repricing.  Except for either adjustments pursuant to
paragraph 5.2(f) (relating to the adjustment of Shares), or reductions of the
Exercise Price approved by the Company’s shareholders, the Exercise Price for
any outstanding Option may not be decreased after the date of grant nor may an
outstanding Option granted under the Plan be surrendered to the Company as
consideration for the grant of a replacement Option with a lower Exercise
Price.


 


2.7.  Grants of Options and
SARs.  An Option may but need not be
in tandem with an SAR, and an SAR may but need not be in tandem with an
Option.  If an Option is in tandem with
an SAR, the Exercise Price of both the Option and SAR shall be the same, and
the exercise of the Option or SAR with respect to a Share shall cancel the
corresponding tandem SAR or Option right with respect to such Share.  If an SAR is in tandem with an Option but is
granted after the grant of the Option, or if an Option is in tandem with an SAR
but is granted after the grant of the SAR, the later granted tandem Award shall
have the same Exercise Price as the earlier granted Award, but the Exercise
Price for the later granted Award may be less than the Fair Market Value of the
Share at the time of such grant.


 


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SECTION 3

FULL VALUE AWARDS


 


3.1.  Definition.  A “Full Value Award” is a grant of one or
more Shares or a right to receive one or more Shares in the future, with such
grant subject to one or more of the following, as determined by the Committee:


 


(a)                                  The grant shall be in
consideration of a Participant’s previously performed services, or surrender of
other compensation that may be due.


 


(b)                                 The grant shall be
contingent on the achievement of performance or other objectives during a
specified period.


 


(c)                                  The grant shall be
subject to a risk of forfeiture or other restrictions that will lapse upon the
achievement of one or more goals relating to completion of service by the
Participant, or achievement of performance or other objectives.


 


The grant of Full Value Awards may also be subject to such other
conditions, restrictions and contingencies, as determined by the Committee.


 


3.2.  Restrictions on Awards.


 


(a)                                  The Committee may
designate a Full Value Award granted to any Participant as “performance-based
compensation” as that term is used in section 162(m) of the Code.  To the extent required by Code
section 162(m), any Full Value Award so designated shall be conditioned on
the achievement of one or more performance objectives.  The performance objectives shall be based on
Performance Measures selected by the Committee.  For Awards under this Section 3 intended to be
“performance-based compensation,” the grant of the Awards and the establishment
of the performance objectives shall be made during the period required under
Code section 162(m).


 


(b)                                 If the right to become
vested in a Full Value Award is conditioned on the completion of a specified
period of service with the Company or the Subsidiaries, without achievement of
Performance Measures or other performance objectives (whether or not related to
the Performance Measures) being required as a condition of vesting, and without
it being granted in lieu of other compensation, then the required period of
service for full vesting shall be not less than three years (subject to
acceleration of vesting, to the extent permitted by the Committee, in the event
of the Participant’s death, disability, retirement, change in control or
involuntary termination).


 


SECTION 4

CASH INCENTIVE AWARDS


 


A Cash Incentive Award is the grant of a right to receive a payment of
cash (or in the discretion of the Committee, Shares having value equivalent to
the cash otherwise payable) that is contingent on achievement of performance or
other objectives over a specified period established by the Committee.  The grant of Cash Incentive Awards may also
be subject to such other conditions, restrictions and contingencies, as
determined by the Committee.  The


 


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Committee may designate a Cash Incentive Award granted to any
Participant as “performance-based compensation” as that term is used in
section 162(m) of the Code.  To the
extent required by Code section 162(m), any such Award so designated shall
be conditioned on the achievement of one or more performance objectives.  The performance objectives shall be based on
Performance Measures as selected by the Committee.  For Awards under this Section 4 intended to be
“performance-based compensation,” the grant of the Awards and the establishment
of the performance objectives shall be made during the period required under
Code section 162(m).


 


SECTION 5

OPERATION AND ADMINISTRATION


 


5.1.  Effective Date.  The Plan shall be effective on the date
immediately prior to the date of the initial public offering of the shares of
the Company (the “Effective Date”).  The
Plan shall be unlimited in duration and, in the event of Plan termination,
shall remain in effect as long as any Awards under it are outstanding;
provided, however, that no Awards may be granted under the Plan after the
ten-year anniversary of the Effective Date.


 


5.2.  Shares and Other
Amounts Subject to Plan.  The Shares
for which Awards may be granted under the Plan shall be subject to the
following:


 


(a)                                  The Shares with
respect to which Awards may be made under the Plan shall be: (i) shares
currently authorized but unissued; (ii) to the extent permitted by applicable
law, currently held or acquired by the Company as treasury shares, including
shares purchased in the open market or in private transactions (it being
recognized that at the time of adoption of the Plan the Company is not
permitted to have treasury shares); or (iii) shares purchased in the open
market by a direct or indirect wholly-owned subsidiary of the Company (as
determined by the Chief Executive Officer or the Chief Financial Officer of the
Company).  The Company may contribute to
the subsidiary or trust an amount sufficient to accomplish the purchase in the
open market of the Shares to be so acquired (as determined by the Chief
Executive Officer or the Chief Financial Officer of the Company).


 


(b)                                 Subject to the
following provisions of this subsection 5.2, the maximum number of Shares
that may be delivered to Participants and their beneficiaries under the Plan
shall be 7,500,000 Shares.


 


(c)                                  To the extent
provided by the Committee, any Award may be settled in cash rather than Shares.


 


(d)                                 Only Shares, if any,
actually delivered to the Participant or beneficiary on an unrestricted basis
with respect to an Award shall be treated as delivered for purposes of the
determination under paragraph (b) above, regardless of whether the Award is
denominated in Shares or cash. 
Consistent with the foregoing:


 


(i)                                     To the extent any
Shares covered by an Award are not delivered to a Participant or beneficiary
because the Award is forfeited or canceled, or the Shares are not delivered on
an unrestricted basis (including, without limitation, by reason of the Award
being settled in cash or used to satisfy the applicable tax withholding


 


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obligation), such Shares shall not be deemed to have been delivered for
purposes of the determination under paragraph (b) above.


 


(ii)                                  If the exercise price
of any Option granted under the Plan or the tax withholding obligation with
respect to any Award granted under the Plan is satisfied by tendering Shares to
the Company (by either actual delivery or by attestation), only the number of
Shares issued net of the Shares tendered shall be deemed delivered for purposes
of determining the number of Shares available for delivery under the Plan.


 


(e)                                  Subject to paragraph
5.2(f), the following additional maximums are imposed under the Plan:


 


(i)                                     The maximum number
of Shares that may be delivered to Participants and their beneficiaries with
respect to ISOs granted under the Plan shall be 7,500,000 Shares; provided,
however, that to the extent that Shares not delivered must be counted against
this limit as a condition of satisfying the rules applicable to ISOs, such
rules shall apply to the limit on ISOs granted under the Plan.


 


(ii)                                  The maximum number of
Shares that may be covered by Awards granted to any one Participant during any
one-calendar-year period pursuant to Section 2 (relating to Options and
SARs) shall be 2,500,000 Shares.  For
purposes of this paragraph (ii), if an Option is in tandem with an SAR, such
that the exercise of the Option or SAR with respect to a Share cancels the
tandem SAR or Option right, respectively, with respect to such Share, the
tandem Option and SAR rights with respect to each Share shall be counted as
covering but one Share for purposes of applying the limitations of this
paragraph (ii).


 


(iii)                               The maximum number of
Shares that may be issued in conjunction with Awards granted pursuant to
Section 3 (relating to Full Value Awards) shall be 2,500,000 Shares.


 


(iv)                              For Full Value Awards
that are intended to be “performance-based compensation” (as that term is used
for purposes of Code section 162(m)), no more than 1,250,000 Shares ay be
delivered pursuant to such Awards granted to any one Participant during any
one-calendar-year period; provided that Awards described in this paragraph (iv)
that are intended to be performance-based compensation shall be subject to the
following:


 


(A)                              If the Awards are
denominated in Shares but an equivalent amount of cash is delivered in lieu of
delivery of Shares, the foregoing limit shall be applied based on the
methodology used by the Committee to convert the number of Shares into cash.


 


(B)                                If delivery of Shares
or cash is deferred until after Shares have been earned, any adjustment in the
amount delivered to reflect actual or deemed investment experience after the
date the Shares are earned shall be disregarded.


 


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(v)                                 For Cash Incentive
Value Awards that are intended to be “performance-based compensation” (as that
term is used for purposes of Code section 162(m)), the maximum amount
payable to any Participant with respect to any performance period shall equal
$500,000 multiplied by the number of calendar months included in that
performance period; provided that Awards described in this paragraph (v), that
are intended to be performance-based compensation, shall be subject to the
following:


 


(A)                              If the Awards are
denominated in cash but an equivalent amount of Shares is delivered in lieu of
delivery of cash, the foregoing limit shall be applied to the cash based on the
methodology used by the Committee to convert the cash into Shares.


 


(B)                                If delivery of Shares
or cash is deferred until after cash has been earned, any adjustment in the
amount delivered to reflect actual or deemed investment experience after the
date the cash is earned shall be disregarded.


 


(f)                                    In the event of a
corporate transaction involving the Company (including, without limitation, any
share dividend, share split, extraordinary cash dividend, recapitalization,
reorganization, merger, amalgamation, consolidation, split-up, spin-off, sale
of assets or subsidiaries, combination or exchange of shares), the Committee
may adjust Awards to preserve the benefits or potential benefits of the
Awards.  Action by the Committee may
include: (i) adjustment of the number and kind of shares which may be delivered
under the Plan; (ii) adjustment of the number and kind of shares subject to
outstanding Awards; (iii) adjustment of the Exercise Price of outstanding
Options and SARs; and (iv) any other adjustments that the Committee determines
to be equitable (which may include, without limitation, (A) replacement of
Awards with other Awards which the Committee determines have comparable value
and which are based on shares of a company resulting from the transaction, and
(B) cancellation of the Award in return for cash payment of the current value
of the Award, determined as though the Award is fully vested at the time of
payment, provided that in the case of an Option, the amount of such payment may
be the excess of value of the Shares subject to the Option at the time of the
transaction over the exercise price).


 


5.3.  General Restrictions.  Delivery of Shares or other amounts under
the Plan shall be subject to the following:


 


(a)                                  Notwithstanding any
other provision of the Plan, the Company shall have no obligation to recognize
an exercise of an Option or SAR or deliver any Shares or make any other
distribution of benefits under the Plan unless such exercise, delivery or
distribution complies with all applicable laws (including, without limitation,
the requirements of the United States Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity or other
regulatory authority with respect to the issue of shares and securities by the
Company.


 


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(b)                                 To the extent that the
Plan provides for issuance of share certificates to reflect the issuance of
Shares, the issuance may be effected on a non-certificated basis, to the extent
not prohibited by or may be made in compliance with applicable law, the
Bye-laws of the Company, or the applicable rules of any stock exchange.


 


5.4.  Tax Withholding.  All distributions under the Plan are subject
to withholding of all applicable taxes, and the Committee may condition the
delivery of any Shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. 
Except as otherwise provided by the Committee and subject to applicable
law, such withholding obligations may be satisfied (i) through cash payment by
the Participant; (ii) through the surrender of Shares which the Participant
already owns (provided, however, that to the extent Shares described in this
clause (ii) are used to satisfy more than the minimum statutory withholding
obligation, as described below, then, except as otherwise provided by the
Committee, payments made with Shares in accordance with this clause (ii) shall
be limited to Shares held by the Participant for not less than six months prior
to the payment date); or (iii) through the surrender of Shares to which the
Participant is otherwise entitled under the Plan; provided, however, that such
Shares under this clause (iii) may be used to satisfy not more than the
Company’s minimum statutory withholding obligation (based on minimum statutory
withholding rates for Federal and state tax purposes, including payroll taxes,
that are applicable to such supplemental taxable income).


 


5.5.  Grant and Use of Awards.  In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the
Plan, and more than one Award may be granted to a Participant.  Awards may be granted as alternatives to or
replacement of awards granted or outstanding under the Plan, or any other plan
or arrangement of the Company or a Subsidiary (including a plan or arrangement
of a business or entity, all or a portion of which is acquired by the Company
or a Subsidiary).  Subject to the overall
limitation on the number of Shares that may be delivered under the Plan, the
Committee may use available Shares as the form of payment for compensation,
grants or rights earned or due under any other compensation plans or
arrangements of the Company or a Subsidiary, including the plans and
arrangements of the Company or a Subsidiary assumed in business
combinations.  Notwithstanding the
provisions of subsection 2.2, Options and SARs granted under the Plan in
replacement for awards under plans and arrangements of the Company or a
Subsidiary assumed in business combinations may provide for Exercise Prices
that are less than the Fair Market Value of the Shares at the time of the
replacement grants, if the Committee determines that such Exercise Price is appropriate
to preserve the economic benefit of the award.


 


5.6.  Dividends and Dividend
Equivalents.  An Award (including
without limitation an Option or SAR Award) may provide the Participant with the
right to receive dividend or dividend equivalent payments with respect to
Shares subject to the Award (both before and after the Shares subject to the
Award is earned, vested, or acquired), which payments may be either made
currently or credited to an account for the Participant, and may be settled in
cash or Shares as determined by the Committee. 
Any such settlements, and any such crediting of dividends or dividend
equivalents or reinvestment in Shares, will be subject to the Company’s
Bye-laws as well as applicable law and further may be subject to such conditions,
restrictions and contingencies as the Committee shall establish, including the
reinvestment of such credited amounts in Share equivalents.


 


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5.7.  Settlement of Awards.  The obligation to make payments and
distributions with respect to Awards may be satisfied through cash payments,
the delivery of Shares, the granting of replacement Awards, or combination
thereof as the Committee shall determine. 
Satisfaction of any such obligations under an Award, which is sometimes
referred to as “settlement” of the Award, may be subject to such conditions,
restrictions and contingencies as the Committee shall determine.  The Committee may permit or require the
deferral of any Award payment, subject to such rules and procedures as it may
establish, which may include provisions for the payment or crediting of
interest or dividend equivalents, and may include converting such credits into
deferred Share equivalents.  Each Subsidiary
shall be liable for payment of cash due under the Plan with respect to any
Participant to the extent that such benefits are attributable to the services
rendered for that Subsidiary by the Participant.  Any disputes relating to liability of a Subsidiary for cash
payments shall be resolved by the Committee.


 


5.8.  Transferability.  Except as otherwise provided by the
Committee, Awards under the Plan are not transferable except as designated by
the Participant by will or by the laws of descent and distribution.


 


5.9.  Form and Time of
Elections.  Unless otherwise
specified herein, each election required or permitted to be made by any
Participant or other person entitled to benefits under the Plan, and any
permitted modification, or revocation thereof, shall be in writing filed with
the Committee at such times, in such form, and subject to such restrictions and
limitations, not inconsistent with the terms of the Plan, as the Committee
shall require.


 


5.10.  Agreement With Company.  An Award under the Plan shall be subject to
such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. 
The terms and conditions of any Award to any Participant shall be
reflected in such form of written (including electronic) document as is
determined by the Committee.  A copy of
such document shall be provided to the Participant, and the Committee may, but
need not require that the Participant sign a copy of such document.  Such document is referred to in the Plan as
an “Award Agreement” regardless of whether any Participant signature is
required.


 


5.11.  Action by Company or
Subsidiary.  Any action required or
permitted to be taken by the Company or any Subsidiary shall be by resolution
of its board of directors, or by action of one or more members of the board
(including a committee of the board) who are duly authorized to act for the
board, or (except to the extent prohibited by applicable law or applicable
rules of any stock exchange) by a duly authorized officer of such company.


 


5.12.  Gender and Number.  Where the context admits, words in any
gender shall include any other gender, words in the singular shall include the
plural and the plural shall include the singular.


 


5.13.  Limitation of Implied
Rights.


 


(a)                                  Neither a Participant
nor any other person shall, by reason of participation in the Plan, acquire any
right in or title to any assets, funds or property of the Company or any
Subsidiary whatsoever, including, without limitation, any specific funds,
assets, or other


 


8

















 


property which the Company or any Subsidiary, in its sole discretion,
may set aside in anticipation of a liability under the Plan.  A Participant shall have only a contractual
right to the Shares or amounts, if any, payable under the Plan, unsecured by
any assets of the Company or any Subsidiary, and nothing contained in the Plan
shall constitute a guarantee that the assets of the Company or any Subsidiary
shall be sufficient to pay any benefits to any person.


 


(b)                                 The Plan does not
constitute a contract of employment, and selection as a Participant will not
give any participating employee or other individual the right to be retained in
the employ of the Company or any Subsidiary or the right to continue to provide
services to the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan.  Except as
otherwise provided in the Plan, no Award under the Plan shall confer upon the
holder thereof any rights as a shareholder of the Company prior to the date on
which the individual fulfills all conditions for receipt of such rights and is
registered in the Company’s Register of Shareholders.


 


(c)                                  All Stock and shares
issued under any Award or otherwise are to be held subject to the provisions of
the Company’s Bye-laws and each Participant is deemed to agree to be bound by
the terms of the Company’s Bye-laws as they stand at the time of issue of any
Shares under the Plan.


 


5.14.  Evidence.  Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information which the
person acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.


 


SECTION 6

CHANGE IN CONTROL


 


Subject to the provisions of paragraph 5.2(f) (relating to the
adjustment of shares), the occurrence of a Change in Control shall have the
effect, if any, with respect to any Award as set forth in the Award Agreement
or, to the extent not prohibited by the Plan or the Award Agreement, as
provided by the Committee.


 


SECTION 7

COMMITTEE


 


7.1.  Administration.  The authority to control and manage the
operation and administration of the Plan shall be vested in a committee (the
“Committee”) in accordance with this Section 7.  The Committee shall be selected by the Board, and shall consist
solely of two or more members of the Board. 
As a committee of the Board, the Committee is subject to the overview of
the Board.  If the Committee does not
exist, or for any other reason determined by the Board, and to the extent not
prohibited by applicable law or the applicable rules of any stock exchange, the
Board may take any action under the Plan that would otherwise be the
responsibility of the Committee.


 


7.2.  Powers of Committee.  The Committee’s administration of the Plan
shall be subject to the following:


 


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(a)                                  Subject to the
provisions of the Plan, the Committee will have the authority and discretion to
select from among the Eligible Individuals those persons who shall receive
Awards, to determine the time or times of receipt, to determine the types of
Awards and the number of Shares covered by the Awards, to establish the terms,
conditions, performance criteria, restrictions, and other provisions of such
Awards, and (subject to the restrictions imposed by Section 8) to cancel
or suspend Awards.


 


(b)                                 To the extent that the
Committee determines that the restrictions imposed by the Plan preclude the
achievement of the material purposes of the Awards in jurisdictions outside the
United States and Bermuda, the Committee will have the authority and discretion
to modify those restrictions as the Committee determines to be necessary or
appropriate to conform to applicable requirements or practices of jurisdictions
outside of the United States and Bermuda.


 


(c)                                  The Committee will
have the authority and discretion to interpret the Plan, to establish, amend,
and rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of any Award Agreement made pursuant to the Plan, and to make
all other determinations that may be necessary or advisable for the
administration of the Plan.


 


(d)                                 Any interpretation of
the Plan by the Committee and any decision made by it under the Plan is final
and binding on all persons.


 


(e)                                  In controlling and
managing the operation and administration of the Plan, the Committee shall take
action in a manner that conforms to applicable corporate law.


 


7.3.  Delegation by Committee.  Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities
and powers to any person or persons selected by it.  Any such allocation or delegation may be revoked by the Committee
at any time.


 


7.4.  Information to be
Furnished to Committee.  The Company
and Subsidiaries shall furnish the Committee with such data and information as
it determines may be required for it to discharge its duties.  The records of the Company and Subsidiaries
as to an employee’s or Participant’s employment (or other provision of
services), termination of employment (or cessation of the provision of
services), leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect.  Participants and other persons entitled to benefits under the
Plan must furnish the Committee such evidence, data or information as the
Committee considers desirable to carry out the terms of the Plan.


 


SECTION 8

AMENDMENT AND TERMINATION


 


The Board may, at any time, amend or terminate the Plan, and may amend
any Award Agreement, provided that no amendment or termination may, in the
absence of written consent to the change by the affected Participant (or, if
the Participant is not then living, the affected beneficiary), adversely affect
the rights of any Participant or beneficiary under any Award granted under the
Plan prior to the date such amendment is adopted by the Board; and further


 


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provided that adjustments pursuant to paragraph 5.2(f) shall not be
subject to the foregoing limitations of this Section 8; and further
provided that the provisions of subsection 2.6 (relating to Option
repricing) cannot be amended unless the amendment is approved by the Company’s
shareholders.


 


SECTION 9

DEFINED TERMS


 


In addition to the other definitions contained herein, the following
definitions shall apply:


 


(a)                                  Award.  The term “Award” means any award or benefit
granted under the Plan, including, without limitation, the grant of Options,
SARs, and Full Value Awards.


 


(b)                                 Board.  The term “Board” means the Board of Directors
of the Company.


 


(c)                                  Change in Control.  The term “Change in Control” means the
occurrence of the events described in any of paragraphs (i), (ii), (iii) or
(iv) below:


 


(i)                                     Acquisition of
Securities.  The acquisition
(disregarding any Excluded Acquisitions) by any Person of ownership of any
Voting Securities if, immediately after such acquisition, such Person has
ownership of more than twenty-five percent (25%) of either the Outstanding
Company Common Shares, or the combined voting power of the Outstanding Company
Voting Securities.  In no event shall a
Change in Control occur by reason of ownership of Shares, Voting Securities,
Outstanding Company Common Shares, or Outstanding Company Voting Securities by
ACE Limited and/or any successor or Affiliate of ACE Limited.


 


(ii)                                  Change in Board.  Individuals who constitute the Incumbent
Board cease for any reason to represent greater than 50% of the voting power of
members of the Board.


 


(iii)                               Corporate
Transaction.  Consummation of (A) a
Corporate Transaction or (B) the sale or other disposition of more than fifty
percent (50%) of the operating assets of the Company (determined on a
consolidated basis), but not including an Internal Reorganization.


 


(iv)                              Liquidation.  Approval by the shareholders of the Company
of a plan of complete liquidation or dissolution of the Company.


 


(v)                                 Definitions.  The terms used in the definition of “Change
in Control” shall have the following meanings:


 


(A)                              An “Affiliate” of a
person or other entity shall mean a person or other entity that directly or
indirectly controls, is controlled by, or is under common control with the
person or other entity specified.


 


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(B)                                The term “Company Plan”
means an employee benefit plan (or related trust) sponsored or maintained by
the Company or any Affiliate of the Company.


 


(C)                                The term “Corporate
Transaction” means any reorganization, merger, amalgamation, consolidation, or
other business combination involving the Company.


 


(D)                               The following shall constitute
“Excluded Acquisitions” of Shares or Voting Securities (whichever is
applicable):


 


(I)                                    Any acquisition of
Shares or Voting Securities (whichever is applicable) by a Company Plan.


 


(II)                                Any acquisition of
Shares or Voting Securities (whichever is applicable) by an underwriter
temporarily holding securities pursuant to an offering of such securities.


 


(III)                            Any acquisition of Shares
or Voting Securities (whichever is applicable) by any Person pursuant to an
Internal Reorganization.


 


(IV)                            Any acquisition of Shares
or Voting Securities (whichever is applicable) directly from the Company
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege unless the security being so exercised,
converted or exchanged was acquired directly from the Company).


 


(V)                                Any acquisition of
Shares or Voting Securities (whichever is applicable) by the Company.


 


(VI)                            Any acquisition of Shares
or Voting Securities (whichever is applicable) by ACE Limited and/or any
successor or Affiliate of ACE Limited or any employee benefit plan (or related
trust) maintained by any such entity.


 


(E)                                 The members of the
“Incumbent Board” shall mean the members of the Board of Directors as of the
Effective Date and shall also mean any individual becoming a director after
that date whose election, or nomination for election by the Company
shareholders, was approved by a vote of a least a majority of the directors
then comprising the Incumbent Board; provided, however, that
there shall be excluded for this purpose any such individual whose initial
assumption of office occurs as a result of an actual or publicly threatened
election contest (as such terms are used in Rule 14a-11 promulgated under the
Securities Exchange Act of 1934) or other actual or publicly threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board.


 


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(F)                                 The term “Internal
Reorganization” means a sale-leaseback or other arrangement resulting in the continued
utilization of the assets being sold or otherwise transferred (or the operating
products of such assets) by the Company. 
The term “Internal Reorganization” also means a Corporate Transaction to
which all of paragraphs (I), (II), and (III) below are applicable:


 


(I)                                    All or
substantially all of the individuals and entities who have ownership,
respectively, of the Outstanding Company Common Shares and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction have
ownership of more than fifty percent (50%) of, respectively, the then
outstanding shares of common equity securities and the combined voting power of
the then outstanding Voting Securities entitled to vote generally in the
election of directors, as the case may be, of the ultimate parent entity
resulting from such Corporate Transaction (including, without limitation, an
entity which, as a result of such transaction, has ownership of the Company or
all or substantially all of the assets of the Company either directly or
through one or more subsidiaries) in substantially the same relative
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Shares and Outstanding Company
Voting Securities, as the case may be.


 


(II)                                No Person (other than
the Company, any Company Plan or related trust, the corporation resulting from
such Corporate Transaction, and any Person having ownership, immediately prior
to such Corporate Transaction, directly or indirectly, of more than twenty-five
percent (25%) of the Outstanding Company Common Shares or the Outstanding
Company Voting Securities, as the case may be) will have ownership of more than
twenty-five percent (25%) of, respectively, the then outstanding common shares
of the ultimate parent entity resulting from such Corporate Transaction or the
combined voting power of the then outstanding Voting Securities of such entity.


 


(III)                            Individuals who were
members of the Incumbent Board immediately prior to the Corporate Transaction
will constitute at least a majority of the members of the board of directors of
the ultimate parent entity resulting from such Corporate Transaction.


 


(G)                                The term “Outstanding
Company Common Shares” as of any date means the then outstanding common shares,
of whatever subclass or series, of the Company.


 


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(H)                               The term “Outstanding
Company Voting Securities” as of any date means the then outstanding Voting
Securities (which shall be counted based on the number of votes that may be
cast per share).


 


(I)                                    The term
“ownership” means beneficial ownership within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934.


 


(J)                                   The term “Person”
means an individual, entity or group as that term is used in
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934.


 


(K)                               The term “Voting
Securities” as of any date means any of the outstanding securities of the
Company entitled to vote generally in the election of the Company’s Board of
Directors.


 


(d)                                 Code.  The term “Code” means the United States
Internal Revenue Code of 1986, as amended. 
A reference to any provision of the Code shall include reference to any
successor provision of the Code.


 


(e)                                  Dollars.  As used in the Plan, the term “dollars” or
numbers preceded by the symbol “$” means amounts in United States dollars.


 


(f)                                    Eligible
Individual.  For purposes of the
Plan, the term “Eligible Individual” means any employee of the Company or a
Subsidiary, and any consultant, director, or other person providing services to
the Company or a Subsidiary; provided, however, that to the extent required by
the Code, an ISO may only be granted to an employee of the Company or a
subsidiary corporation of the Company (as that term is used in section 424(f)
of the Code).  An Award may be granted
to an employee or other individual providing services, in connection with
hiring, retention or otherwise, prior to the date the employee or service
provider first performs services for the Company or the Subsidiaries, provided
that such Awards shall not become vested prior to the date the employee or
service provider first performs such services.


 


(g)                                 Fair Market Value.  Except as otherwise provided by the
Committee, the “Fair Market Value” of a Share as of any date shall be the
closing market composite price for such Share as reported for the New York
Stock Exchange - Composite Transactions on that date or, if the Shares are not
traded on that date, on the next preceding date on which the Shares were
traded.


 


(h)                                 Performance
Measures.  The “Performance
Measures” shall be based on any one or more of the following Company,
Subsidiary, operating unit or division performance measures: gross premiums
written; net premiums written; net premiums earned; net investment income;
losses and loss expenses; underwriting and administrative expenses; operating
expenses; cash flow(s); operating income; profits, earnings before interest and
taxes; net income; stock price; dividends; strategic business objectives,
consisting of one or more objectives based on meeting specified cost targets,
business expansion goals, and goals relating to acquisitions or divestitures;
or any combination thereof.  Each goal
may be expressed on an absolute and/or relative basis, may be based on or
otherwise employ


 


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comparisons based on internal targets, the past performance of the
Company and/or the past or current performance of other companies, and in the
case of earnings-based measures, may use or employ comparisons relating to
capital, shareholders’ equity and/or shares outstanding, investments or to
assets or net assets.


 


(i)                                     Shares.  The term “Shares” means common shares of the
Company.


 


(j)                                     Subsidiaries.  For purposes of the Plan, the term “Subsidiary”
means any corporation, partnership, joint venture or other entity during any
period in which at least a fifty percent voting or profits interest is owned,
directly or indirectly, by the Company (or by any entity that is a successor to
the Company), and any other business venture designated by the Committee in
which the Company (or any entity that is a successor to the Company) has a
significant interest, as determined in the discretion of the Committee.


 


(k)                                  Stock.  The term “Stock” is sometimes used to refer
to common shares of the Company.


 


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